This week Wood Mackenzie, an Edinburgh-based research and consulting firm, reviews recent trends in biotechnology stocks.

Credit: NASDAQ

After a sustained increase from June, the Nasdaq biotechnology index was flat during the August holiday season. It then rose slowly in early September, driven by acquisition activity and better than expected earnings, before tailing off somewhat towards the end of the month.

Some US companies had a strong summer. MedImmune of Gaithersburg, Maryland, for example, regained the US marketing rights to Synagis, the company's respiratory-infection drug, from Abbott. The resulting increased earnings forecast ignited speculation that the company may be acquired, further boosting its share price. And California-based Gilead Sciences, meanwhile, continued to reap rewards from its flu treatment Tamiflu, which is marketed by Roche and is in high demand because of fears of a global epidemic.

Chiron's share price rose after a $4.5-billion acquisition offer by Novartis, even though the offer was rejected by Chiron's board (see Nature 437, 317; 200510.1038/437317b). And Eyetech Pharmaceuticals of New York saw its share price jump on the announcement of its acquisition by OSI Pharmaceuticals, also based in New York state. But OSI's share price fell sharply, because of fears among investors that the object of the deal, Eyetech's eye drug Macugen, will lose sales after 2006 following the anticipated approval of rival treatments.

Although the Nasdaq biotechnology index has recently outperformed more general indices, there is little evidence of any improvement in the financing environment. This suggests that mergers and acquisitions are likely to feature strongly in the industry's medium-term future.

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